Explain the difference between direct and indirect quotations.

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Explain the difference between direct and indirect quotations.

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Explain the difference between direct and indirect quotations.

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The terms which are commonly used while quoting a currency exchange rate are foreign currency and domestic currency.
 
When an exchange rate is quoted as the number of units of home currency, per unit of foreign currency, it is referred to as "Direct Quote". On the contrary, when the exchange rate is quoted as the number of units of foreign currency, per unit of domestic currency, it is known as "Indirect Quote".
 
In simpler terms, when an exchange rate is expressed from the perspective of home currency, it is termed as direct quote and when it is expressed from the view-point of foreign currency, it is termed as indirect quote.
 
For instance,
The home currency is USD(dollar) and the foreign currency is EUR(Euro) and the current exchange rate is 1.500 dollars per euro. Thus, in this scenario the direct quote will be obtained by dividing foreign currency (FOREIGN) by home (HOME) currency. FOREIGN/ HOME i.e 1.500/1 which can be interpreted as 1 euro = 1.5 dollars. On the other side, the indirect quote will be obtained by dividing the home currency (HOME) by foreign currency (FOREIGN). HOME/FOREIGN i.e 1/1.500 = 0.66 which can be read as 1 dollar =0 .66 euros.
 
It can be observed that direct quote and indirect quote of exchange rate are reciprocals of each other.

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